Goldmoney Inc.

Goldmoney Inc. (TSX: XAU) offers sale and purchase of precious metal through online platform to its clients while the group also provides delivery and storage of precious metals, coin retailing, lending etc. 

Key Highlights:

• Increase in Fee Revenue: In the recent past, the company reported constant increase in fee revenue, which is a key positive as it is supporting the overall company’s performance. Notably, during the first nine months of FY21, fee revenue stood at CAD 7.031 million v/s CAD 1.923 million in the previous corresponding period. The increase was driven by higher client metal holdings, increase in precious metal fair value, while the company implemented a minimum monthly fee and non-active/dormant account fees.                 

Q3FY20 Income Statement Highlights (Source: Company Presentation)

• Hovering above Long-term support levels: Despite a short-term correction of roughly 11% in the last one month, the XAU stock has closed above the long-term support levels of 200-days and 150-days simple moving average, respectively.

Source: Refinitiv (Thomson Reuters) 

Q3FY21 Financial Highlight:

• XAU announced its quarterly result, wherein the company posted revenue of CAD 97.592 million v/s CAD 108.161 million in the previous corresponding period (pcp).
• Gross profit was reported at CAD 4.917 million, higher than CAD 4.368 million in pcp. The period was marked by lower cost of sales (CAD 94.191 million v/s CAD 105.692 million in pcp).
• Total operating expenses stood at CAD 3.653 million v/s CAD 6.703 million in pcp. The quarter reported slightly higher payroll expenses (CAD 1.578 million v/s CAD 1.519 million), increase in advertising and promotion (CAD 0.430 million v/s CAD 0.415 million in pcp), a foreign exchange loss of CAD 0.758 million v/s a gain of CAD 1.292 million in pcp.
• Net income stood at CAD 4.040 million v/s a net loss of CAD 2.958 million in pcp.
• Cash and cash equivalents stood at CAD 18.384 million, while total assets stood at CAD 189.722 million.

Q3FY20 Income Statement Highlights (Source: Company Report)

Risks: A fall in the precious metal prices might dampen the overall value client’s assets, which may result in lower revenue for the group.

Stock Recommendation: 

The company reported tangible capital of CAD 128.1 million, reflecting a 12% growth over FY20. The recent outbreak of COVID 19 did not impact the company’s operations while it has benefitted from the strong demand for precious metal, which is a key positive. Moreover, net working capital stood at CAD 94.33 million, up by 19% from FY20. On the valuation front, the stock is available at an EV to Sales multiple of 0.3x on TTM basis, which is significantly lower than the industry median of 8.0x. Considering the above rationale, we recommend a ‘Speculative Buy’ rating on the stock of XAU at the closing price of CAD 2.99 on April 15, 2021.

One-Year Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

 Gamehost Inc.

Gamehost Inc. (TSX: GH) is operating hospitality and gaming properties in Alberta, Canada. The company operates services like casinos offering slot, VLT, lottery and table games; Hotel segment includes hotels catering to mid-range clients etc.

Key Updates:

• New Expansion: The company has focused on its recent expansion plans and accelerated its ongoing construction plans of two projects. First project includes 7,500 square foot expansion to gaming and non-gaming amenities in Deerfoot Casino, amounting to CAD 3.5 million, expected to be completed within the spring of FY21. In the second project, the group invested ~CAD 2.5 million, which constitutes a 6,350 square foot expansion to gaming and non-gaming amenities at Boomtown Casino and is expected to be executed within the summer of FY21. 

• Cost-efficiency program: The closure of casinos and other related activities has led to a severe cash crunch for the casino players. Hence, to remain afloat, most of the players are adopting a conservative approach and minimizing extra cost in order to support the company’s bottom-line. GH took all the access of COVID-19 relief programs and also deferred its certain payment in order to support its working capital. Moreover, the company also suspended its dividend payout, which would support its liquidity levels. 

FY20 Financial Highlights:

• GH announced its full-year result, wherein the company posted operating revenue of CAD 34.6 million, as compared to CAD 68 million in FY19. The decline was primarily attributable to the voluntary closure of casinos due to the restrictions imposed on account of the COVID 19 pandemic.
• The company reported gross profit of CAD 9.1 million, significantly lower than CAD 26.2 million in the previous year. The decline was primarily attributable to lower revenue, partially offset by lower cost of sales (CAD 25.5 million v/s CAD 41.8 million in the previous year).
• The company reported profit before income tax of CAD 7.5 million, significantly lower than CAD 20.3 million in pcp. The company posted a lower administrative expense of CAD 2.3 million, as compared to CAD 2.9 million in FY19.
• The company reported its net profit of CAD 5.7 million, declined from CAD 16.3 million in the previous year.

FY20 Income Statement Highlights (Source: Company Report)

Risks: Due to the extended lockdown, the group might witness a shrink in profitability, which might lead to liquidity risk due to excess financial obligations.

Stock Recommendation:

During a major part of (289 days) FY20, the corporation’s casino operations were fully closed or operated at restricted capacity. Despite a tepid scenario, the company reported profitability, supported by prudent capital management, which is a key positive. Meanwhile, from October 1, 2020, the Alberta Gaming, Liquor and Cannabis Commission (AGLC) launched new online gambling site, PlayAlberta.ca, which went live with virtual slot and table games, and we expect the company would likely to be benefited from it. On the valuation front, the stock is available at an EV to EBITDA of 11x on NTM basis, as compared to the industry (Hotel & Entertainment Services) median of 13.1x. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 7.24 on April 15, 2021.

Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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